Arnot South Coal Resource Competent Person s Report. Coal of Africa Limited & Peel Hunt LLP

Transcription

1 Arnot South Coal Resource Competent Person s Report Report Prepared for: Coal of Africa Limited & Peel Hunt LLP Report Prepared by: Gemecs (Pty) Ltd Sentinel House 37 Walter Sisulu Street Middelburg Republic of South Africa Tel : Fax : Report Author: NJ Denner Project Consultant Pr. Sci. Nat /98 Project Number: GMXP January 2016

2 Table of Contents EXECUTIVE SUMMARY QUALIFICATIONS OF CONSULTANT INTRODUCTION LOCALITY TENURE GEOLOGY Regional Geology of Witbank Coalfield Local Geology Physical Seam Characteristics EXPLORATION AND DATA Historical Exploration Goldfields ( ) Exxaro ( ) Universal Coal Desktop Study (2012) Data Verification Data Completeness Coordinates Lithology Physical Data Geophysical Data Qualities Summary for Geological Model GEOLOGICAL MODELLING Borehole Summary Structural Modelling Page 2 of 53

3 7.3 Coal Quality Modelling COAL RESOURCE ESTIMATION Previous Resource Estimations Site Visits Resource Areas Resource Classification Coal Resource Estimation Assumptions Coal Resource Statement Coal Quality APPENDIX A APPENDIX B Page 3 of 53

4 List of Tables Table 1. Arnot South Project Summary of coal resources by status... 8 Table 2. Arnot South farms portions mineral rights summary Table 3. Seam statistics from borehole intersections Table 4. Average Relative Densities per coal seam Table 5. Gross in situ tonnes for the Arnot South Project Table 6. Mineable in situ tonnes for the No.2 seam with thickness cut-offs applied. 38 Table 7. Arnot South Project Summary of coal resources by status Table 8. Raw coal qualities per seam Table 9. Raw coal qualities for No.2 Seam with thickness cut-offs applied Table 10. List of borehole collars Page 4 of 53

5 List of Figures Figure 1. Locality plan Figure 2. Plan indicating the relevant farms and portions of the Arnot South Project based on the Regulation 2(2) plan Figure 3. South African Coalfields Witbank Coalfield Figure 4. Witbank Coalfield Figure 5. Undulating pre-karoo palaeo-topographic terrain Figure 6. General stratigraphic sequence and coal seams of the Witbank Coalfield 16 Figure 7. Geological map of Arnot South Figure 8. Aeromagnetic data from the Council for Geoscience Figure 9. Aeromagnetic interpretation showing possible dykes and fault lines Figure 10. Typical stratigraphic succession at Arnot South Figure 11. Seam 2 depth below surface (m) &seam thickness (m) Figure 12. Seam 3 depth below surface (m) & seam thickness (m) Figure 13. Seam 4L depth below surface (m) & seam thickness (m) Figure 14. Seam 4U depth below surface (m) & seam thickness (m) Figure 15. Seam 5 depth below surface (m) & seam thickness (m) Figure 16. Goldfields Helpmekaar exploration drilling Figure 17. Borehole location of Exxaro drilling at Arnot South Figure 18. Borehole plan indicating borehole positions Figure 19. Relationship between inventory coal, coal resources and coal reserves (Australian Guidelines for the Estimation and Classification of Coal Resources) Figure 20. No. 4Upper & 4Lower Seams Resource Classification Figure 21. No. 3 & 2 Seams Resource Classification Figure 22. Seam 2 Raw CV Figure 23. Seam 2 Raw VM Page 5 of 53

6 Figure 24. Seam 2 Raw AS Figure 25. Seam 2 Raw TS Page 6 of 53

7 EXECUTIVE SUMMARY This report replaces any previous resource reports for the Arnot South Project. Gemecs has been engaged by Coal of Africa Limited (the Client ) to update the Competent Person s Report for the Arnot South coal resource project in accordance with the AIM rules and guidelines as set out by the AIM Note for Mining, Oil and Gas Companies. This report is addressed to the Client and its Nominated Adviser, Peel Hunt LLP. Gemecs understands that this report will be included as part of an AIM admission document to be published by the Client (the Admission Document ). For the purposes of the AIM rules for Companies, Gemecs is responsible for this report as part of the Admission Document and declares that it has taken all reasonable care to ensure that the information contained in this report is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. Gemecs consents to the inclusion of this report, and reference to any part of this report, in the Admission Document. The Arnot South project was acquired by Universal Coal from Exxaro on 29 March The reported coal resources is based on a geological model by Gemecs in 2012 for Universal Coal. No additional geological information or boreholes were added to the existing model, nor was the geological model changed in any way. The only variation in reported coal resources is due to a slight change (reduction) in the mineral lease area that was previously not presented accurately. Gross in situ coal resources for the Arnot South project is estimated at million tonnes. Due to a high degree of uncertainty with regard to the quality of the historical data, as well as expected dolerite intrusions, a geological loss of 30% was applied to the resource area and in situ tonnes after geological losses amount to million tonnes. It is assumed that only the No.2 seam, which represents 93% of the resource, has economic potential. The No.2 seam is largely extractable by underground means. In light of this, the No.2 seam resource was further categorised according to a minimum seam thickness cut-off at 1.80m to report a mineable in situ coal resource and is estimated at 95.1 million tonnes. Net attributable tonnes based on the 50% interest held by Universal Coal Development VII is stated at 103.3million tonnes gross in situ, and 47.6 million tonnes mineable in situ. Substantial potential exists to increase the resource base further by drilling out the southern part of the Arnot South project area. Page 7 of 53

8 Only raw coal qualities are reported for this project. The calorific values of all the coal seams are generally above 22.0MJ/kg, the volatile matter content is >22.6% and the sulphur content is between %. The coal easily meets Eskom s minimum specifications on a raw basis. A summary table of resources by status with net attributable tonnes is presented below in Table 1. Table 1. Arnot South Project Summary of coal resources by status Summary of resources by status Coal Gross in situ tonnes Mineable in situ tonnes Gross in situ Net Mineable in Net Category tonnes Attributable situ tonnes Attributable Tonnes (Mt) Tonnes (Mt) Tonnes (Mt) Tonnes (Mt) Measured Indicated Inferred Total Operator Universal Coal Development VII (Pty) Ltd Page 8 of 53

9 1. QUALIFICATIONS OF CONSULTANT Gemecs (Pty) Ltd ( Gemecs ) is a medium-sized geological company which renders geological and mining consulting services to the mining industry. Its consultants have the required experience in preparing competent persons', technical advisors' and evaluation reports for mining and exploration companies. Input is provided in terms of the JORC (Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, 2012 Edition) and supported by the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves, 2003 Edition. Independence is assured by the fact that, neither the Competent Person, nor any of the Competent Person s directors, staff and associates involved in this report, hold any interest in the value of the Client or its subsidiary or associated companies, and do not have any interest in Universal and are independent of either Company s directors, senior management and advisers. Gemecs will receive a fee for the preparation of this report in accordance with normal professional consulting practice. This fee is not contingent on Admission or the outcome of this report and Gemecs receive no other benefit for the preparation of this report. The information in this report that relates to Coal Resources for the Arnot South Project is based on a resource estimate completed by Mr Nico Denner who is employed by Gemecs (Pty) Ltd. Mr Denner, Pr.Sci.Nat, B.Sc Hons (Geology), FGSSA, SEG, is a geologist with 20 years experience in the South African mining industry and sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Denner is a Member of South African Council for Natural Scientific Professions (Membership No /98) and consents to the inclusion of this information in the form and context in which it appears in this report. The author states that this report complies with the guidelines as stipulated in the JORC code, 2012 Edition and coal resources are reported in accordance with the JORC code. Gemecs places reliance on Universal Coal plc that all legal information provided to Gemecs at the time of writing is both valid and accurate for the purpose of compiling this report, including tenure and Mineral Right status. Page 9 of 53

10 2. INTRODUCTION The Arnot South project was acquired by Universal Coal from Exxaro on 29 March Universal Coal engaged Gemecs during 2012 to compile all the available borehole data into a standard borehole database, and to create a new geological model in order to report in situ coal resources for the project. Since then, no additional geological information or boreholes were added to the existing model, nor was the geological model changed in any way. All coal resources reported are identical to previous estimations. 3. LOCALITY The Arnot South Prospecting Area is situated approximately 10km east of the town of Hendrina, 25km west of Carolina and 50km south east of Middelburg in the Mpumalanga Province, South Africa, as indicated in Figure 1. It is located in close proximity to two of Eskom s operation power stations; Hendrina (25km) and Arnot (5km). Figure 1. Locality plan Page 10 of 53

11 4. TENURE Exxaro is the owner of this project, where Eyesizwe Coal (Pty) Ltd holds a New Order Prospecting Right, MP30/5/1/1/2/360PR, over the project area, originally granted in The right was due to expire on 29 October The renewal application was lodged on 2 August 2011, which date is before the expiry of the right. Therefore the prospecting right continues to be in force, notwithstanding its stated expiry date, by virtue of the protection provided by section 18(5) of the MPRDA. Results on the renewal application are still pending. The acquisition of the prospecting right by Universal Coal is subject to Section 11 and 102 applications, drafting of which is in process. Universal Coal Development VII (Pty) Ltd has agreed to acquire 50.0% of the Arnot South Project, subject to regulatory approvals. Arnot South Project is 50.0% owned by Universal Coal Development VII (Pty) Ltd a subsidiary of Universal Coal. The mineral right boundary covers an area of approximately ha, and a plan of these portions is presented overleaf in Figure 2. Details of farms and portions are presented overleaf in Table 2. Slight discrepancies have been identified in the mineral rights outline and relevant portion descriptions as received from the previous owner Exxaro and available prospecting right documents. Efforts are ongoing to finalise this and possible amendments might be made to the prospecting contract. The possible changes seems to be minor, and is expected not to have a major effect on the estimated coal resources of this project. Table 2 therefore reflect the properties as per the approved Regulation 2(2) plan, which takes president over the description in the prospecting contract. Exxaro owns the following surface rights, totalling ha, which are included in the sale: Leeuwpan 494 JS (Portions Re Ext, Re Ext Portion 4, Portions 7, 8 & 9) Op Goeden Hoop 205 IS (Re Ext portion 2) Groblersrecht 175 IS (Portion 4) Vaalwater 173 IS (Re Ext Portions 11 & Portion 21, located outside PR) The surface rights owned by Exxaro are leased to various farmers who utilise the area for crop farming (mainly mealies) and grazing. No access agreements exist with the remaining surface owners. Page 11 of 53

12 Table 2. Arnot South farms portions mineral rights summary Farms & Portions Vlakfontein 166 IS (RE Ext., Ptns 02, 05, 08, 09, 10, 13 & 14) Tweefontein 203 IS (Re Ext ptns 03, 05, 06,09 &10. Ptns 04, 07, 08, 11, 12, 13, 14, 18, 19, 20, 21, 22, 23, 24 & 25) Op Goeden Hoop 205 IS (RE Ext ptn 02) Groblersrecht 175 IS whole farm Klipfontein 495 IS (RE Ext. of Mineral Area 01) Vaalwater 173 IS (RE Ext ptns 02,10 & 11, ptns 12 & 14) Mooiplaats 165 IS (Re Ext ptn 04, Re Ext ptn 13, Ptns 11, 12, 15 & 16) Helpmekaar 168 IS whole farm Schoonoord 164 IS (Ptn 19) Leeuwpan 494 JS (RE Ext, RE Ext ptn 4, Ptns 07, 08 & 09) Weltevreden 174 IS (M/A 02, RE Ext M/A 03, M/A, Ptns 01 & 04) Nooitgedacht 493 JS (Ptns 04 & 09) Surface Owners hip No No Yes Yes Portion 4 No Yes Re Ext Ptn11 & Ptn 21 (outside Prospect permit) No No No Yes No No Prospect Permit Number MP30/5/1/1/2/360PR Licence Area (ha) ±15,531 Holder Eyesizwe Coal (Pty) Ltd. (Section 11 transfer to UCD VII still pending) Interest 50.0% Expiry date 29 Oct Renewal submitted results pending Page 12 of 53

13 Figure 2. Plan indicating the relevant farms and portions of the Arnot South Project based on the Regulation 2(2) plan 5. GEOLOGY 5.1 Regional Geology of Witbank Coalfield Arnot South is located on the eastern margin of the Witbank Coalfield (Figure 3). The northern limit of the Coalfield is defined by the limit of the coal measures where it sub-outcrops against the pre-karoo formations. The southern limit is regarded as running from several kilometres south of the Delmas Colliery in a generally north-easterly direction to a position somewhere just south of South Witbank Colliery. From this point eastwards for about 60km the limit is defined by the natural boundary of the so-called Smithfield Ridge which is represented by a series of pre-karoo inliers of Rooiberg felsites, and to the west the limit is where it sub-outcrops against the pre-karoo formations (Figure 4). Page 13 of 53

14 Figure 3. South African Coalfields Witbank Coalfield Arnot South Figure 4. Witbank Coalfield Page 14 of 53

15 The sediments of the coal-bearing Ecca Group of the Karoo Sequence in this coalfield were deposited on an undulating pre-karoo palæo-topographic terrain, which had a significant influence on the nature, distribution and thickness of the coal seams. Post-Karoo erosion has removed parts of the stratigraphic column, including substantial volumes of coal in some areas. A maximum of 180m of Karoo strata is preserved. The general effect of palæotopography on the coal seams is illustrated in the following diagram: Figure 5. Undulating pre-karoo palaeo-topographic terrain The five classically recognized coal seams of the Witbank Coalfield, numbered from the base up as Nos. 1, 2, 3, 4 and 5 respectively, are contained within a succession of some 70-75m in thickness (Figure 6). Inter-seam partings between coal seams remain remarkably constant over much of the coalfield, but become somewhat variable towards the northern limits of the coalfield where the various stratigraphic units are generally thinner. Page 15 of 53

16 Figure 6. General stratigraphic sequence and coal seams of the Witbank Coalfield Dolerite intrusions, in the form of dykes and sills, have adversely affected certain parts of the Coalfield. Large areas of coal-bearing ground have been devolatilised or burnt and rendered unsuited to exploitation. Transgressive sill intrusions can cause significant displacement of seams, which seriously affects exploitation in many areas. 5.2 Local Geology The project area is mainly underlain by the coal-bearing Vryheid formation, part of the Ecca group (Pv) as presented on an excerpt of the 1: geological series map in Figure 7. Some indications of basement outcrops are indicated on the geological map and are predominantly of the Proterozoic Transvaal Supergroup (Vdi). These areas have a negative impact on coal deposition as previously indicated in Figure 5. Surface outcrops of dolerite sills Page 16 of 53

17 (do) are indicated, and is expected to be present within the resource area as well. This sill is normally present some 15m to 20m above the No.2 Seam. This feature is typically 5 40 metres thick and has resulted in devolatilisation and minor resource losses. Feeder dykes are expected to occur in the vicinity of the sill. No information is known about faults, but exploration towards the north (Arnot Mine) indicated that faults with displacement in excess of 2.5m are rare. No other major structures are known to be present. Figure 7. Geological map of Arnot South This structural interpretation is supported by a detailed analysis of aeromagnetic data and available borehole intersections. Edgar Stettler and Associates conducted the aeromagnetic interpretation using two data sets, one being the 200m line spacing high resolution data flown as part of the Southern Bushveld coverage (collected between 2005 and 2006); and for areas not covered by the latter the older regional 1 km flight line spacing Council for Geoscience data (Figure 8). Page 17 of 53

18 Figure 8. Aeromagnetic data from the Council for Geoscience Figure 9 shows the few localities (purple lines) where the aeromagnetic data indicate that the magnetic linear bodies may sub-outcrop or be encountered in the first ~80m below surface, i.e. within the Karoo sequence and may pose a potential loss of ground risk during coal mining. The post Karoo faults occur predominantly in the north-western part of the project area. Figure 9. Aeromagnetic interpretation showing possible dykes and fault lines Page 18 of 53

19 The distribution of the coal seams at Arnot South is largely controlled by a central NNE-SSW trending palaeo-low channel within the Arnot Valley. In general the No s 5, 4, 3 and 2 seams are present. The No.2 seam is the main economic seam constituting more than 90% of the in situ coal resource. The depth to the top of the No. 2 Seam is determined by the basement floor and local surface topography and reaches an average depth of around 45m in the lease area. Minimum depth in the sub-outcrops is around 10-20m and maximum depths is around 110m to the south. Incision by the Vaalwater Spruit and associated tributaries has eroded significant areas of the original extent of the upper coal seams along the edges of the palaeolow and in general, the No.2 seam sub-outcrops along incised valleys along drainages, particularly towards the east. The typical stratigraphic succession of the Vryheid Formation at Arnot South is illustrated overleaf in Figure 10. The No.2 seam thickness varies between 0.1m up to 5.0m; with the average seam thickness for the entire Prospecting Area being 1.65m. Dolerite intrusions devolatilized the No.2 seam or it is eliminated in parts of the Prospecting Area. The floor elevation is relatively flat with no major structural displacements; some potential although very small exists for the exploiting of the resource utilizing opencast mining methods where the coal seam depth to the top of the No.2 seam is less than 20m. The No.2 seam consists of hard, dull to lustrous coal with several bright coal bands and occasional stone partings. The No.3 seam occurs approximately 14m above the 2 seam across the lease area with an average thickness of 0.5m. The No.4U & 4L seam and No.5 seam are present some 30m and 50m above the No.2 Seam, respectively and largely preserved in the palaeo-low areas. The No.1 seam is absent or erratically developed in the area. A summary of the borehole intersections per seam is presented overleaf in Table 3. Page 19 of 53

20 Figure 10. Typical stratigraphic succession at Arnot South Seam Table 3. Seam statistics from borehole intersections Number Intersections Average thickness (m) Minimum Thickness (m) Maximum Thickness (m) S S4U S4L S S S Page 20 of 53

21 5.2.1 Physical Seam Characteristics The following sections provide details of the structural (distribution, thickness and depth below surface) characteristics for the seams present at Arnot South. No. 2 Seam The No.2 seam occurs from 10m below surface in the east to in excess of 50m-100m below surface within a NNE-SSW trending basement low/channel towards the west. The average depth for the No.2 seam is approximately 40m below surface. Figure 11. Seam 2 depth below surface (m) &seam thickness (m) The distribution and thickness of the No.2 seam at Arnot South varies in thickness from 0.5m to 5.0m, averaging 1.65m and is generally thickest in the central portion of the basement low/channel. No. 3 Seam The No.3 seam is present from <10m below surface in the east to up to 90m below surface in the southern extent of the basement low. The average depth for the seam is approximately 30m below surface. The No.3 seam varies in thickness from <0.1m to up to 1.30m, averaging 0.5m. Page 21 of 53

22 Figure 12. Seam 3 depth below surface (m) & seam thickness (m) No. 4L Seam The No.4L seam sub-outcrops (<10m below surface) in the central part of the area and occurs to depths of up to 80m below surface in the southern extent of the basement low. The average depth for the seam is approximately 25m below surface. The No.4L seam varies in thickness from <0.25m to up to 2.0m, averaging 0.9m. The seam is best developed in the southern part of the area, where it may be suitable for extraction by open-pit methods in areas less than 10m below surface. Page 22 of 53

23 Figure 13. Seam 4L depth below surface (m) & seam thickness (m) No. 4U Seam The No.4U seam occurs 5-10m above the No.4L seam. The average depth for the seam is approximately 15m below surface. The No.4U seam varies in thickness from <0.25m to up to 1.6m, averaging 0.7m. The seam is again best developed in the southern part of the area, where it may be suitable for extraction by open-pit methods together with the No.4L seam in areas less than 20m below surface. No. 5 Seam The No.5 seam has very limited occurrence due to mostly removing of the seam by means of surface weathering. It occurs between 10-50m depth, with the deepest portion to the south west. The No.5 seam varies in thickness from <0.25m to up to 1.25m, averaging less than 0.5m The seam is poorly developed and has very little to no economic significance in the project area. Page 23 of 53

24 Figure 14. Seam 4U depth below surface (m) & seam thickness (m) Figure 15. Seam 5 depth below surface (m) & seam thickness (m) Page 24 of 53

25 6. EXPLORATION AND DATA 6.1 Historical Exploration The rights to certain portions of the Arnot South project were historically held by Goldfields. In the late 1990s Goldfields ceded these rights to Eyesizwe (Pty) Ltd, the first significant BEEcontrolled coal mining company established following the promulgation of the new Minerals Act. Eyesizwe was subsequently merged with the mining assets held by Iscor to form what is today known as Exxaro, the fourth largest coal producer in South Africa Goldfields ( ) Goldfields conducted extensive exploration drilling in the area, then called the Helpmekaar Project, between 1975 and 1998 with approximately 161 holes drilled (Figure 16). Figure 16. Goldfields Helpmekaar exploration drilling Page 25 of 53

26 Eyesizwe inherited most of the drilling data during the purchasing stage and subsequently completed a report based on these results in However, the quality of the data, especially the wash tables, give a poor level of confidence, because of incomplete and varying wash instructions. This review carried out by Eyesizwe came to the following conclusions: 1) All the seams are present in the project area, but only the No.2 seam has economic potential 2) The total in situ resource (not JORC or SAMREC compliant) for the No.2 seam is 120 Mt with a minimum seam thickness of 0.8m and raw volatile matter content (ad) of 18%. 3) Only very limited small open-cast potential exists (where the stripping ratio is less than 5:1) 4) At a 1.70m thickness cut-off the No.2 seam in situ resource comes to 52.6 Mt. 5) The quality (on an air-dried basis) of the raw coal is summarised below: CV (MJ/kg) Vol % Ash % ) Washability simulations indicated the following product qualities can be attained (on an air-dried basis): IM % S % FC % Scenario Primary Product Secondary Product Combined Product Yield % Yield % (Theoretical) CV (MJ/kg) Yield % (Theoretical) CV (MJ/kg) A-grade B-grade C-grade Eskom Page 26 of 53

27 6.1.2 Exxaro ( ) In 2008 Exxaro drilled 33 boreholes on a 1km x 1km grid on the farms Helpmekaar 168 IS, Weltevreden 174 IS and Vlakfontein166 IS, i.e. over the central portion of the Arnot South area only, as presented by Figure 17. Figure 17. Borehole location of Exxaro drilling at Arnot South During the due diligence period, Universal Coal appointed Gemecs to verify the Exxaro data and develop a geological model and resource estimate. Geological modelling was performed using Geovia Minex TM software and the following cut-off parameters were applied: Seam thickness <1.8m excluded Raw Volatiles <18% excluded Page 27 of 53

28 This Gemecs study indicated the following: 1) Within the Exxaro target area both the No.3 and No.2 seams are present, but only the No.2 seam has economic potential. 2) A total in situ Inferred resource (not JORC or SAMREC compliant) for the No.2 seam of 34.9 Mt with an average seam thickness of 2.54m over the central portion of Arnot South. 3) Only very limited small open-cast potential exists (where the stripping ratio is less than 5:1) along the eastern sub-outcrop area. 4) A raw quality (on an air-dried basis) of: CV (MJ/kg) Vol % Ash % ) Washability simulations indicated the following product qualities can be attained (on an air-dried basis): IM % S % FC % Scenario Primary Product Secondary Product Combined Product Yield % Yield % (Theoretical) CV (MJ/kg) Yield % (Theoretical) CV (MJ/kg A-grade B-grade C-grade Eskom Universal Coal Desktop Study (2012) Following completion of the transaction Universal Coal commissioned Gemecs to develop a geological model and resource estimate based on both the Goldfields and Exxaro data sets. The study involved the following: 1) Acquisition of all available historical data held by the Council for Geoscience Note: The original Goldfields data held by Eyesizwe was lost during the transfer of the project to Exxaro. Copies of some, but not all, of this data are, however, held by the Council for Geosciences. Page 28 of 53

29 2) Capturing the available Goldfields and Exxaro data into GBIS (geological database management software). 3) Geological modelling and resource estimation. Coal resources reported in this report are based on this final model that was created by Gemecs in Data Verification Historical borehole data was received from Universal Coal in electronic and PDF format. Data was not in a standardised borehole database format, and Gemecs undertook data capturing and electronic import activities so as to standardise the data format. All the available borehole and analytical data is now stored in a Micromine Geobank borehole database. Data was standardised to the same data standard and validations and checks were performed within the database. It must be noted that there are numerous data shortcomings and missing details especially with older borehole information. Gemecs performed a database audit on the borehole data, and findings are summarised below Data Completeness Total number of boreholes in database: 378 in the ARNS project. 84 boreholes had no collars and have been excluded from rest of reports. 11 boreholes were found having collars only, no lithology or seam details, also excluded. 106 boreholes had lithological records. 309 boreholes have seam data; this includes the ones with lithology. 375 boreholes have zones info; this includes barren holes. These include values of 0 to 5m given for overburden. Considering boreholes with coordinates and correlation data leads to a total of 294 boreholes for which data was dumped and graphic reports made. 94 boreholes have samples (243) and analyses. All samples have analyses, while 197 have raw and 99 have wash analyses Coordinates The coordinates are given in Lo29, WGS datum. Two pairs of boreholes were found closer than 20 metres apart. Three boreholes have suspect coordinates. Page 29 of 53

30 End of hole depths tie in with lithology, where lithology exists Lithology Neither gaps nor overlaps were found in the lithology data Physical Data Depth of samples and corresponding lithology has been checked, no discrepancies found. Eight instances found where seams and lithology depths do not correspond. Data corrected. Twelve instances found where seam and sample depths do not correspond. Data corrected. From/To depths being swopped around, 47 errors found. Data corrected Geophysical Data No geophysics available. Not recorded if it was done Qualities No significant errors were found in the analyses. Number of instances found where the sink analyses of the wash was not recorded. Fortunately there were raw analyses available, which were used in the cumulative analyses. The wash samples were regularised to the standard wash densities. 18 samples had only two wash fractions, i.e and Sink. These could not be regularised Summary for Geological Model A total of 293 boreholes were imported to the Minex geological model. Of these, only 215 have sufficient information to be used for structural modelling. Only 94 boreholes have analytical data that was used for coal quality modelling. 7. GEOLOGICAL MODELLING 7.1 Borehole Summary A total of 215 boreholes are present in the geological database for modelling. Some of these boreholes plot outside the prospect permit boundary. These boreholes have been used to improve the integrity of the model, but any model results that plot outside the prospect boundary were removed. A plan indicating the borehole positions is presented below in Figure 18. Page 30 of 53

31 Figure 18. Borehole plan indicating borehole positions 7.2 Structural Modelling Geological modelling was performed using Geovia Minex TM software. All seams as intersected in the boreholes were modelled. This includes the No.5, No.4U, No.4L, No.3 and No.2 seams. The distribution of the No.1 seam is too erratic to be modelled. The surface topography was modelled using the borehole collars only. The limit of weathering depth as recorded in each borehole was used to model the limit of weathering surface (LOW). The stratigraphical seam sequence was validated in Minex before structural modelling commenced. This is done to check if all the seams are in the correct stratigraphical order, that no negative seam thicknesses are present, and to report on any missing seams. Missing seams (boreholes that did not intersect seams due to basement, dolerite or weathering) were interpolated and thicknesses set to zero, to ensure a full stratigraphical sequence for Page 31 of 53

32 modelling and also to ensure that the negative borehole intersections (boreholes that did not intersect any coal seams) are honoured in the modelling process. Basic statistics and histograms within Minex were also used and plotted for each seam s variables to check and validate the input data. Each coal seam was modelled on a grid of 100x100m using the general purpose gridding (growth algorithm) in Minex. Roof and floor surfaces were created for each coal seam, as well as a thickness grid. Coal extrapolation was limited to 300m from the last borehole with data which is deemed to be appropriate for this geological setting and data distribution. No faults or other structures were interpolated or modelled. Only minor structures are expected to be present in the resource area. Secondary grids, for example, depth below surface and strip ratios, were calculated for each seam by means of the grid arithmetic function using the modelled grid surfaces. This final model was validated to actual borehole intersections to ensure the integrity of the model. 7.3 Coal Quality Modelling Raw coal qualities were modelled for each coal seam using the general purpose gridding (growth algorithm) in Minex. Basic statistics and histograms, as well as some cross correlation plots within Minex, were used to check and validate the samples as well as seam composite quality data. No quality data was excluded from the modelling process. Raw coal qualities modelled are: Relative Density (RD), Calorific Value (CV), Ash (AS), Inherent Moisture (IM), Fixed Carbon (FC), Volatile Matter (VM) and Total Sulphur (TS). Dry ash-free volatiles (DAF) were calculated from the relevant model grids and reported along with the raw coal qualities. All coal qualities reported hereafter are on an air-dried basis. Coal seam qualities were composited in Minex, based on the final coal seam selections. Modelled grids for each quality variable were created on a 100x100m grid. Model grid expansion was limited to 300m from the last known sampling point. No coal product washability options were performed as yet. Only raw coal qualities are modelled and reported. Page 32 of 53

33 8. COAL RESOURCE ESTIMATION 8.1 Previous Resource Estimations Reference to previous resource estimations were presented in Section 6 under Exploration and Data. 8.2 Site Visits The author of this report has not conducted a site visit to the project area. He is, however, familiar with the area and has visited neighbouring coal projects in the region during the past 3 years. The coal resource estimation is based on a geological model created by Gemecs during 2012, and includes all available borehole information, wireline logging and coal analytical data stored in a borehole data base. 8.3 Resource Areas The project resource area consists of a number of farms and portions. Due to a lack of borehole information, the total resource area is, however, not covered by the model. Coal resources are reported for the total area only where there is sufficient coverage of borehole information. Future changes to coal resources can be substantial given this situation, and will depend on the future exploration programme drill hole spacing, coverage and actual coal intersections. 8.4 Resource Classification Coal resource classification was carried out according to the JORC code guidelines. The relationship between coal resource and coal reserve categories is presented in Figure 19. Resource confidence levels were applied following the guidelines based on borehole spacing as documented in the Australian Guidelines for Estimating and Reporting of Inventory Coal, Coal Resources and Coal Reserves, 2003 Edition. The 2014 edition recommends that an assessment of the confidence in the estimation of significant variables should be undertaken. As this report was compiled before the 2014 release, such an assessment was not done. The minimum borehole spacing for the measured resource category was applied at 500m, for Indicated 1000m and Inferred 2000m. No coal resource are reported outside of these limits. Only boreholes where the relevant seam is represented by raw coal analyses are considered as point observations to be used for resource classification. Resource classification is therefore at a low level due to the limited amount of boreholes with acceptable coal qualities in the geological model. Page 33 of 53

34 Figure 19. Relationship between inventory coal, coal resources and coal reserves (Australian Guidelines for the Estimation and Classification of Coal Resources) Figures illustrate the resource classification for the No s. 4U, 4L, 3 & 2 seams. Measured resource areas are shown in green, Indicated in pink and Inferred in red. Coal resource classification distribution for the various resource categories for all seams is as follows: Measured 1%, Indicated 32% and Inferred 67%. Page 34 of 53

35 Figure 20. No. 4Upper & 4Lower Seams Resource Classification Figure 21. No. 3 & 2 Seams Resource Classification Page 35 of 53

36 8.5 Coal Resource Estimation Assumptions In situ coal resources were reported for each seam within the resource area boundary. Coal resources are reported on an in situ basis, and all coal qualities are reported on an air-dried basis. A minimum seam thickness of 0.5m was applied to all coal seams to exclude thin uneconomical coal seams. No coal quality cut-offs were applied for reporting of the coal resource tonnes. Relative densities were applied to the coal volumes according to the density model grid for each seam. Average relative densities for each coal seam are summarised below: Table 4. Average Relative Densities per coal seam Seam RD S4U 1.51 S4L 1.46 S S Coal Resource Statement No changes are reported compared to previous coal resource statements done by Gemecs. Gross in situ coal resources for the Arnot South project is estimated at million tonnes. Due to a high degree of uncertainty with regards to the quality of the historical data, as well as expected dolerite intrusions, a geological loss of 30% was applied to the resource area and in situ tonnes after geological losses is estimated at million tonnes. It is assumed that only the No.2 seam, which represents 93% of the resource, has economic potential. The No.2 seam is largely extractable by underground means. In light of this, the No.2 seam resource was further categorised according to a minimum seam thickness of 1.80m to report a mineable in situ coal resource. The mineable in situ (after geological losses of 30%) No.2 seam coal resource at a thickness cut-off of >1.80m is estimated at 95.1 million tonnes. Net attributable tonnes based on the 50% interest held by Universal Coal Development VII is stated at 103.3million tonnes gross in situ, and 47.6 million tonnes mineable in situ. Substantial potential exists to increase the resource base further by drilling out the southern part of the Arnot South project area. Coal resources as reported are presented overleaf in Tables 5 & 6, with a summary table of resources by status with net attributable tonnes presented in Table 7. Page 36 of 53

37 Arnot South Coal Resource Competent Person s Report 8 Jan 2016 AREA NAME POLYGON AREA (ha) SEAM Table 5. Gross in situ tonnes for the Arnot South Project RESOURCE CLASS COAL AREA (ha) GROSS IN SITU TONNES (Mt) GEOLOGICAL LOSS (%) IN SITU TONNES (Mt) AVE SEAM THICKNESS (m) AVE DEPTH BELOW SURFACE (m) PR S4U MEASURED 0 30% 0 PR S4U INDICATED 0 30% 0 PR S4U INFERRED % TOTAL S4U PR S4L MEASURED 0 30% 0 PR S4L INDICATED % PR S4L INFERRED % TOTAL S4L PR S3 MEASURED 0 30% 0 PR S3 INDICATED % PR S3 INFERRED % TOTAL S PR S2 MEASURED % PR S2 INDICATED % PR S2 INFERRED % TOTAL S TOTAL COAL Page 37 of 53

38 Arnot South Coal Resource Competent Person s Report 8 Jan 2016 AREA NAME POLYGON AREA (ha) Table 6. Mineable in situ tonnes for the No.2 seam with thickness cut-offs applied SEAM RESOURCE CLASS COAL AREA (ha) GROSS IN SITU TONNES (Mt) GEOLOGICAL LOSS (%) MINEABLE IN SITU TONNES (Mt) AVE SEAM THICKNESS (m) AVE DEPTH BELOW SURFACE (m) S2 >1.80m S2 MEASURED % S2 >1.80m S2 INDICATED % S2 >1.80m S2 INFERRED % TOTAL S2 (>1.8m) Table 7. Arnot South Project Summary of coal resources by status Summary of resources by status Coal Gross in situ tonnes Mineable in situ tonnes Gross in situ Net Mineable in Net Category tonnes Attributable situ tonnes Attributable Tonnes (Mt) Tonnes (Mt) Tonnes (Mt) Tonnes (Mt) Measured Indicated Inferred Total Operator Universal Coal Development VII (Pty) Ltd Page 38 of 53

39 8.7 Coal Quality Only raw coal qualities are reported for the project at present. Coal washability data is available, should specific coal quality products need to be investigated in future. All coal qualities are reported on an air-dried basis. Average coal qualities per seam is presented overleaf in Tables 8 & 9. The calorific values of all the coal seams are generally above 22.0MJ/kg, volatile matter content is >22.6% and a sulphur content between %. The coal easily meets Eskom s minimum specifications on a raw basis. As previously mentioned, the No.2 seam is the main economic seam and is contributing to 93% of the coal resources. Raw coal qualities for the No.2 seam with a minimum seam thickness cut off at 1.80m, are also consistently meeting the minimum quality requirements for local Eskom power station specifications. Selected coal quality plans for the No.2 seam are presented after the coal quality tables. Table 8. Raw coal qualities per seam AREA NAME SEAM RESOURCE CLASS GROSS IN SITU TONNES (Mt) RD CV (MJ/kg) AS (%) FC (%) VM (%) IM (%) TS (%) DAF (%) PR2016 S4U MEASURED 0 PR2016 S4U INDICATED 0 PR2016 S4U INFERRED TOTAL S4U PR2016 S4L MEASURED 0 PR2016 S4L INDICATED PR2016 S4L INFERRED TOTAL S4L PR2016 S3 MEASURED 0 PR2016 S3 INDICATED PR2016 S3 INFERRED TOTAL S PR2016 S2 MEASURED PR2016 S2 INDICATED PR2016 S2 INFERRED TOTAL S Page 39 of 53

40 Table 9. Raw coal qualities for No.2 Seam with thickness cut-offs applied AREA NAME SEAM RESOURCE CLASS MINEABLE IN SITU TONNES (Mt) RD CV (MJ/kg) S2 >1.80m S2 MEASURED S2 >1.80m S2 INDICATED S2 >1.80m S2 INFERRED TOTAL S2 (>1.8m) AS (%) FC (%) VM (%) IM (%) TS (%) DAF (%) Figure 22. Seam 2 Raw CV Page 40 of 53

41 Figure 23. Seam 2 Raw VM Page 41 of 53

42 Figure 24. Seam 2 Raw AS Page 42 of 53

43 Figure 25. Seam 2 Raw TS Page 43 of 53

44 APPENDIX A Table 10. List of borehole collars BOREID Easting Northing Elevation EOH DIP AZ TYPE COORDSYS B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B CGS WGS29 B79/HD CGS WGS29 B80/HD CGS WGS29 E CGS WGS29 E CGS WGS29 E CGS WGS29 E CGS WGS29 E CGS WGS29 E CGS WGS29 E CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 Page 44 of 53

45 BOREID Easting Northing Elevation EOH DIP AZ TYPE COORDSYS F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 F CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 Page 45 of 53

46 BOREID Easting Northing Elevation EOH DIP AZ TYPE COORDSYS GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 GB CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 Page 46 of 53

47 BOREID Easting Northing Elevation EOH DIP AZ TYPE COORDSYS H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H64R/D CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 H CGS WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 HR168IS A WGS29 I CGS WGS29 I CGS WGS29 I CGS WGS29 I CGS WGS29 I CGS WGS29 I CGS WGS29 Page 47 of 53